NORTH SHORE VENTURES LTD V ANSTEAD HOLDINGS INC

[2010] EWHC 1485 (Ch), Chancery Division, Mr Justice Newey, 21 June 2010

Loan - Guarantee - Liability of guarantor - Whether creditor had failed to disclose material facts to guarantor - Whether terms of loan agreement were valid or had been varied - Whether default interest rate was a penalty - Whether loan had been frustrated

North Shore a company associated with a well known Russian businessman, B, loaned the sum of US$50 million to Anstead, a company owned by F and P. As a condition for the loan, F and P personally guaranteed the loan. A substantial part of the loan was frozen by the Swiss authorities. The loan was repaid, but sums remained outstanding, and North Shore sought to enforce the guarantee. F and P argued that the guarantee could be set aside for non-disclosure by North Shore of the facts (which it admittedly knew) that: B and companies with which he was associated were the subject of investigations by the Swiss authorities, including into embezzlement and other matters relating to the Russian company Aeroflot; the Swiss authorities had frozen bank accounts of B and the companies with which he was associated and had supplied a substantial number of documents to the Russian authorities; and there was a very substantial risk that the loans might be frozen if they were paid to Switzerland. Newey J upheld North Shore's claim under the guarantee. The court laid down the following propositions of law: it was incumbent on a creditor to disclose unusual facts to a prospective guarantor; the obligation was not limited to features of the contract between the creditor and the debtor; the creditor need not disclose anything which the guarantor could reasonably be expected to know; it was immaterial that the guarantor could be expected to be ignorant of a particular matter if he knew of the risk in general terms; the information to be disclosed had to be material in that it increased the guarantor's risk; and the information had to be significant to the guarantor himself. On the facts, F and P were aware of the general nature of the risk so that disclosure had not been required. In addition, exclusion clauses in the guarantee removed any obligation on North Shore to make disclosure, and a certificate signed by North Shore certifying the amount of the indebtedness and stating that it was conclusive evidence against F and P was not manifestly incorrect. As regards the loan agreement itself, Newey J held that: it was not to be rectified to remove a clause under which there was a compound 20 per cent default rate; the rate was not a penalty; while there was an implied term which required the loaned money to be available for use, Anstead was aware of the Swiss investigations and there was no implied term as to usability in that regard; the loan agreement had not been varied; and the loan agreement had not been frustrated.